Asset Protection Strategies
Protecting and preserving assets for the future is an increasing concern in a litigious and uncertain society. We design and implement solutions to help you protect assets from creditors, estranged spouses, and lawsuits both during your life and when wealth is transferred to the next generation.
While anyone can be sued, you may have a higher risk of being the subject of a lawsuit if you are in certain professions or engage in certain types of activities. Doctors, dentists, lawyers, and architects are generally more likely to be sued than those in other occupations. Owning an investment property or a business can also expose you to a lawsuit if someone is injured on the property or in connection with your business activities. Having substantial wealth can itself make you an attractive target for a high-claim lawsuit over a car accident or an injury in your home.
While property and casualty insurance is the primary line of protection against a lawsuit, a claim based on a serious injury can easily exceed your insurance coverage.
If you have substantial assets or are in a position where you’re at high risk of being sued, you may want to plan your finances in such a way to protect your assets from creditors. Below are some techniques that can be used to keep your assets safe from legal claims.
- Maximize contributions to a tax-deferred retirement account.
A Self-Settled Asset Protection Trust is a legal vehicle that allows you to shield assets from future creditors. This type of trust can only be created in certain states that allow them. New York does not recognize self-settled asset protection trusts, but New York residents can create under another state's laws.
One of the simplest ways of protecting your assets is to maximize your contributions to a tax-favored retirement account. These accounts are protected from creditors by federal law.
- Protect personal assets from business-related lawsuits by operating businesses through a legal entity.
If you own a business, be sure to operate it through a legal entity, such as a limited liability company (LLC), a limited partnership (LP), or a corporation. These entities wall off your business-related liability from your personal assets. If you’re sued for an action related to your business activity, the plaintiff can generally only reach assets that are owned by the business.
This is equally true if you own an investment property that you rent out. Many people who own real estate and have tenants don’t realize that they are operating a business. A slip on an icy sidewalk or on a broken stairwell can result in a claim for millions of dollars. To protect your family, you should purchase the property through a business entity, usually an LLC. If you already own the property, you can transfer the property into the entity; however, be sure to get approval from your mortgage company if the property is subject to a mortgage. Also check to see if such a transfer will trigger state real estate transfer taxes.
It is important to note that legal structures alone are insufficient to protect against creditors. It is important to combine those structures with reasonable business or landlord insurance. It’s also important to respect the legal structure in place – so you should avoid mingling your personal and business accounts.
- Place assets into an Irrevocable Trust.
An effective strategy for removing assets from the reach of personal creditors is to place assets into an irrevocable trust for other family members. You can create a trust for your spouse and/or your children.
- Create Self-Settled Asset Protection Trust